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Are Disadvantaged Bidders Doomed in Ascending Auctions?

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A bidder is said to be advantaged if she has a higher expected valuation of the auction prize than her competitor. When the prize has a common-value component, a bidder competing in an ascending auction against an advantaged competitor bids especially cautiously and, hence, the advantaged bidder wins most of the time. However, contrary to what is often argued, a disadvantaged bidder still wins with positive probability, even if his competitor.s advantage is very large and even if the disadvantaged bidder has the lowest actual valuation ex-post. Therefore, the disadvantaged bidder has an incentive to participate in the auction, and the presence of a bidder with a small advantage does not have a dramatic e¤ect on the seller.s revenue.

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Paper provided by Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy in its series CSEF Working Papers with number 169.

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Date of creation: 01 Nov 2006
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Publication status: Published in Journal of Industrial Economics, 2008, Vol. 56, 3, p. 683.
Handle: RePEc:sef:csefwp:169

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Keywords: common-value auctions; asymmetric bidders;

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  1. Paul Klemperer, 2004. "Auctions: Theory and Practice," Economics Papers 2004-W09, Economics Group, Nuffield College, University of Oxford.
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  8. Paul Klemperer, 1997. "Auctions with Almost Common Values: The Wallet Game and its Applications," Economics Series Working Papers 1998-W03, University of Oxford, Department of Economics.
  9. Marco Pagnozzi, 2003. "Sorry Winners," CSEF Working Papers 108, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy, revised 09 May 2007.
  10. Maskin, Eric & Riley, John, 2000. "Asymmetric Auctions," Review of Economic Studies, Wiley Blackwell, vol. 67(3), pages 413-38, July.
  11. Milgrom, Paul R & Weber, Robert J, 1982. "A Theory of Auctions and Competitive Bidding," Econometrica, Econometric Society, vol. 50(5), pages 1089-1122, September.
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  13. de Frutos, Maria-Angeles & Pechlivanos, Lambros, 2006. "Second-price common-value auctions under multidimensional uncertainty," Games and Economic Behavior, Elsevier, vol. 55(1), pages 43-71, April.
  14. Marco Pagnozzi, 2007. "Bidding to lose? Auctions with resale," RAND Journal of Economics, RAND Corporation, vol. 38(4), pages 1090-1112, December.
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  16. repec:wop:humbsf:2000-72 is not listed on IDEAS
  17. Levin, Dan & Kagel, John H., 2005. "Almost common values auctions revisited," European Economic Review, Elsevier, vol. 49(5), pages 1125-1136, July.
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